Good afternoon Steemians!
To be successful in trading there are two fundamental factors that depend directly on you: The first factor is the knowledge and experience that is gained with dedication and a lot of practice. The second factor, on which we will focus in this article, is in your mind with your attitude and the proper control of your emotions.
The path to success in trading is not different in many other facets of your life, for example if you practice a sport, in addition to many hours of practice is essential a good psychological and mental preparation to face opportunities, sacrifices, obstacles, victories, failures, ...
The psychology of trading is vital for any beginner, who must develop his own investment strategy while learning to deal with these emotional factors. But it is also vital for professional traders who must remain psychologically strong and not lose discipline in order to be consistent and profitable for years to come.
What are the main emotions we face when trading?
The fear
Fear will make you not want to take any risk in your operative. Act in two senses:
You may see an opportunity to negotiate but fear does not let you dare to open any position and therefore you will lose it.
You may have an open position and fear will cause you to close it prematurely: If the position is in losses, fear will push you to close it so you don't lose more money when if you hold it, it could turn around and generate profits. If the position is in profit, fear will also push you to close it so as not to lose your profits in the event that it is turned over when, if you keep it open, these profits could become much higher.
You will also be a victim of fear and impatience if you trade at the risk of money you cannot afford to lose.
The greed
Greed is a very common emotion. Virtually everyone wants to earn more and more, with as little effort as possible and if it's the sooner the better.
Greed will cause you to trade too much and take too many risks, so instead of helping you make a profit, it will wipe out your trading account. It pushes you to enter the market, to open positions without control, not to be patient waiting for the right opportunities. Also to keep open positions in profits longer than necessary with the idea of earning even more.
You are not controlling your greed if you see yourself identified in some of these cases:
- If you push yourself to open positions every day or if when you don't find them you feel angry, frustrated or uncomfortable.
If you feel angry when you realize that you have missed a good trading opportunity.
If you are taking a high risk in order to make more profit.
If your goals are to double or triple your account in the shortest time possible instead of moving slowly but surely.
If you try to change your system or try new strategies frequently because you think you are not opening enough positions every day and this limits your profits.
What are the keys to success?
1- Deal adequately with losing operations
When most traders fall on a bad streak of losing trades they tend to blame themselves and try to change strategy. They believe that these losses occur because there is something they have done wrong or that their system is not good.
If you are constantly changing your system it is impossible to know what works and what does not. It is not a question of never changing anything but of doing it with criteria. Losing is part of trading. This is perfectly normal and even the most experienced traders with winning strategies lose a significant percentage of their trades.
You must develop your tolerance for error, avoid fear and accept losses as part of learning and the path to becoming a profitable trader.
2- To deal adequately with the winning operations
A few winning positions can go to your head and convince yourself that your trading system is infallible, that you are a trading crack, that you have a gift for this or that you are immune to losses.
Nobody likes to lose, but when you start it can even become positive so you realize that trading involves risks and that it is very easy to lose. Overconfidence can be your worst enemy. You'll put more money into play and take more risks than you want. You will believe that the market will live up to your predictions and you will be unable to react to the mistakes you make.
3- Think positively
Positive thinking works. When you think positive and follow your trading strategy you will get more successful trades.
On the other hand, if your thoughts are negative they will drag you to make many more mistakes. You will fall prey to fear or anger and you can hardly learn, analyze or act objectively in that state.
Think about any sport: You think that a basketball player will get something positive from thinking for himself that he won't be able to basket, in a footballer that has doubts when he is going to take a penalty, a cyclist in the middle of the climb doesn't trust that his strength will reach him, an athlete who isn't convinced that he will be able to improve his scores,... This is the best recipe to fail, that's why in any sport a positive inner language is very important to generate self-confidence. The same thing happens in trading.
4- Be aware of what you can and can't control
No matter how hard you try, you cannot control how the market will react and whether a trade will be a winner or a loser. The market is made up of millions of people and automatic systems that make decisions and execute their trades without you being able to influence them.
What you can control is yourself and the way you act: how you look for investment opportunities, on which you base your trading decisions, how you limit the risks per trade, how you establish your profit objectives, how you open positions, when you close them,...
Focus on these aspects that you can control and do not obsess over the results. You cannot control the results. What is valuable in trading is not the individual results of each trade but having a profitable and consistent system. You should always try to relativize the result and focus on your system. Losses do not mean that your system is bad and that it is better to dedicate yourself to something else, nor do profits make you a master of the markets with an infallible system.
5- Control emotions
Feelings like fear and greed are always going to be there and you can't eliminate them altogether. What you can do is control them, keep them at bay and try to attack the factors that generate those feelings.
Fear often appears when you do not yet have adequate knowledge of the market. You are inexperienced and lack confidence in yourself and your trading system.
The main solution is practice. Open a demo account to avoid risking your real money or start with very little money. Until you are ready, test, develop and optimize your trading system to make it profitable, have patience and maintain a positive attitude focused on learning. The first few months are the most complicated: don't be discouraged, don't give up on losing trades and don't become confident in winning trades.
Another frequent cause of fear in many traders is that they operate with the aim of finding a solution to a complicated economic situation. If this is your case and you open a real account, risking money that you cannot afford to lose, you will be easy prey of impatience and fear. I advise you not to resort to trading for this, try to find another source of income and return to trading when you can act calmly and without pressure.
Consider how a trading robot operates: automatic trading systems act according to a predefined strategy when the necessary variables are given. If the variables are given then it enters the market but it remains to the wait the time that is necessary. You should do the same avoiding self-conviction of good opportunities that are not or to think if you have many or few open positions and what has been the result of the previous ones.
I hope that these basic keys of trading psychology will be useful. Don't hesitate to share them with resteem or other social networks so that other people can get to know them as well. If you have any other key or want to tell me your experience, just send me your comment. Thank you and good trading.
